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Detroit Free Press Business Writer

That bit of legalese could decide whether Detroit’s 23,500 pensioners get reduced payments because of the city’s Chapter 9 bankruptcy filing.

Bankruptcy Judge Steven Rhodes asked attorneys Tuesday to define the meaning of the word “thereby” in the Michigan Constitution, which says: “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.”

The question is: Does the word “thereby” mean that only the state is prohibited from cutting pensions, while the bankruptcy court is allowed to cut them?

“I have no predisposition on this issue at all,” Rhodes said in an exchange with Jerome Goldberg, an attorney for Detroit retiree David Sole. “This is strictly hypothetical legal talk to figure out where we are.”

Goldberg and Thomas Morris, an attorney for Detroit’s retiree associations, argued that any pension cuts authorized in bankruptcy court would be made by the city, which is a subdivision of the state. They said that’s not allowed under the Michigan Constitution.

Emergency manager Kevyn Orr has said he believes federal bankruptcy law, which allows contracts to be severed, will trump the Michigan Constitution’s protection of public pensions.

“The danger to those with pensions is if ‘thereby’ refers to protection only from the state and city and not the federal government,” said Larry Dubin, a law professor at University of Detroit Mercy.